Stocks jump on European pledge to help banks

Stocks rose sharply in the U.S. and Europe Monday after French and German leaders promised to strengthen European banks. The Dow Jones industrial average jumped 255 points, led by Bank of America. The euro rose against the dollar.

German Chancellor Angela Merkel and French President Nicolas Sarkozy said they would finalize a “comprehensive response” to the debt crisis by the end of the month, including a plan to make sure that banks have adequate capital.

“The more we can put our arms around the problem with a little more detail, the better, and time frames usually help,” said Michael Sansoterra, a portfolio manager at Silvant Capital Management in Atlanta.

The Dow rose 255 points, or 2.3 percent, to 11,355 at 3:34 p.m. Bank of America Corp. rose 4.7 percent, the most of the 30 companies that make up the index. JPMorgan Chase & Co. rose 4.4 percent.

The Dow soared 468 points from Tuesday through Thursday last week after Europe’s central bank moved to shore up the region’s lenders. It dipped 20 points Friday and is still down 1.7 percent for the year.

European stock markets rose and the euro strengthened against the dollar on the latest indication that European leaders were making progress on containing the region’s debt crisis. Germany’s DAX rose 3 percent and France’s CAC-40 rose 2 percent.

Investors were also relieved that troubled Franco-Belgian bank Dexia would be partially nationalized. Dexia needed rescue because owns large amounts of government bonds of indebted countries like Greece and Italy.

European banks have become more reluctant to lend to each other, putting overextended banks like Dexia in danger. That prompted the European Central Bank last week to offer unlimited one-year loans to the banks through 2013 to help give them access to credit.

Investors have been worried that a default by Greece could cause the value of Greek bonds held by those banks to plunge, hurting their balance sheets. U.S. banks could also be affected if Greece goes through a messy default, since they own Greek bonds and also have close ties to European banks.

Apple Inc. rose 4 percent to $384.44 after reporting that first-day orders for its new iPhone topped 1 million. The phone goes on sale Friday.

Yahoo Inc. jumped 2.1 percent to $15.79 following reports that founder Jerry Yang may organize a buyout of the company with private equity investors.

Alcoa Inc. will become the first major U.S. company to report third-quarter results after the closing bell Tuesday. The aluminum maker’s stock rose 2.9 percent to $9.99. Panera Bread rose 4 percent to $107.88 after an analyst said the company may start to buy its own stock.